Startups Need to Change Their Cultures in Cockroach Era

As unicorns go out of style with VCs, the glossy, idealized cultures of startups will need to change.

From Unicorns to Cockroaches

The word “unicorn” is younger than it feels. Investor Aileen Lee of Cowboy Ventures coined it in a 2013 TechCrunch post, “Welcome To The Unicorn Club,” to describe U.S.-based software companies started since 2003 and valued at over $1 billion. At the time, her team counted just 39 of them, about 0.07% of venture-backed software startups. Lee said they liked the term because it meant “something extremely rare, and magical.”

Within a couple of years, billion-dollar valuations were no longer so rare, and the money that produced them shaped how startups behaved. The “cockroach” is the opposite idea: a company built to survive almost anything, growing steadily and keeping costs low, rather than chasing a sky-high valuation on investors’ cash.

A recent article from TechCrunch notes that free-flowing VC funding has softened startups and perpetuated cultures that focus more on small wins like offices and sought-after hires, rather than big wins like building a strong customer base and generating revenue.

Unlike mythical unicorns, cockroaches don’t require palatial offices, onsite chefs, and playgrounds consisting of pool tables and arcade games. They are perfectly comfortable with a dingy basement, relying on scraps for sustenance.

Perks Versus Fit

This shift in culture may be a trade-off in attracting top talent, but one that should benefit startups in the long-run. Miriam Diwan, a former portfolio manager and the co-founder and CEO of NowMoveMe, tells Inc. that “the employees looking for Facebook or Google levels of perks are not the best fit” for startups.

Similarly, YCombinator president Sam Altman says “the people who get hurt most often are employees at these startups who look at these valuations and think they aren’t pretend.”

Cultural change can be difficult for any organization. A key challenge for startups is to ensure that changes are aligned with long-term strategic plans and organizational values.

Perks aren’t the real problem. A free lunch costs little next to a payroll. The bigger issue is what a perk-heavy culture signals: that money is easy, that growth will be paid for by the next round, and that spending is a sign of success. When those assumptions break, a company that hired and spent on that basis is in trouble.

Default Alive or Default Dead

Y Combinator co-founder Paul Graham put the same idea in sharper terms in an October 2015 essay, “Default Alive or Default Dead?” He asked a simple question: if a startup’s expenses stay the same and its revenue keeps growing at its recent rate, does it reach profitability on the money it has left?

Graham wrote that half the founders he talked to didn’t know the answer. His biggest warning was about spending on people. “Hiring too fast is by far the biggest killer of startups that raise money,” he wrote. Founders often assume they can raise more money later, but he argued that “the more you depend on it, the falser it becomes.”

That’s the cockroach mindset in a sentence. A startup that’s default alive can survive a tough funding market. One that’s default dead is relying on investors to keep the lights on.

The Lesson Came Back in 2022

The 2016 cooling didn’t last. Funding surged again in the years that followed, and growth-at-all-costs came back with it. Then in 2022, rising interest rates and falling tech stocks brought the pressure back, harder.

In May 2022, Sequoia Capital reviewed a 50-page presentation titled “Adapting to Endure” with the founders of its roughly 250 portfolio companies, Bloomberg reported. Calling the moment a “crucible,” the firm told founders to “do the cut exercise” right away, looking at where they could save cash by cutting or scaling back projects, R&D and marketing. Bloomberg noted that late-stage startups that had been funded to “grow at all costs” were now re-focusing on profit, and several were laying off staff.

In other words, the cockroach era TechPortfolio described in 2016 turned out to be less a one-time shift than a recurring cycle. When money is cheap, cultures soften. When it isn’t, survival skills matter again.

What It Means for Founders

Build a culture that doesn’t depend on the funding climate. Hire people who are excited by the problem you’re solving rather than by the office, and be honest with them about what their equity is really worth.

Know at all times whether you’re default alive. Track your spending, revenue growth and cash on hand closely enough to answer Graham’s question without a spreadsheet. And treat each new hire as a commitment that has to be paid for out of revenue, not out of the next round. Startups that do those things don’t have to change their culture when the market turns, because they never built it on easy money in the first place.